Where legislators come in is that health care is one of the most heavily licensed and heavily regulated fields of endeavor in the world. Already there are substantial state-to-state differences in what nurses are allowed to do without the supervision of doctors, differences that tend to reflect the entrenched political power of doctors rather than any sound public policy research.

This speaks to one of my long running themes: capitalism is a system of creative destruction and we're doing just fine on the creativity side but we've too many people standing athwart the path of history shouting "Stop!".

The existence of innovation-blocking institutions should of course not come as a surprise, but what makes such institutions prevalent and effective in some periods and not in others? Among economic historians there is a growing consensus that guilds in Europe lost their ability to block new technology once society realised that innovation had a beneficial effect on humanity, and was thus not a zero-sum game. This shift in societal attitudes, led by a handful of enlightened thinkers of the day, is what Mokyr (2005) labels the Great Enlightenment, Jacob (1981) the Radical Enlightenment, McCloskey (2010) the Bourgeois Revaluation, and Goldstone (2002) the Engineering Culture. According to these scholars, the deathlike grip guilds had held on innovation ended once enlightened individuals of the period educated society about the marvels of technology, and with this realisation, human history was changed forever.

The authors then go on to point out that they would argue very slightly differently. The way to get rid of the guilds' ability to block innovation is to create larger markets. Which we'll come to in a moment.

The final part of this is something Milton Friedman said repeatedly: the AMA is no more than a doctors' guild jealously protecting the privileges (and thus incomes) of those inside the AMA from whoever might threaten those privileges and incomes.

Which brings us back to IBM's Watson. Essentially, what has been done is to automate the knowledge base of an oncologist. And what usually happens when we automate such a function is that the skilled professional doesn't get to do the job any more. We've automated that skill and so don't need that skilled labour: it can now be done by less skilled workers plus the machine.

Now, who thinks that the AMA is going to allow nurses, or nurse practitioners (or, for the sake of extreme argument, patients themselves) to diagnose cancers with the aid of Watson? Quite, even to state the idea is to see how ridiculous it is in the current climate. There will be a tooth and nail fight to insist that only highly skilled doctors should be allowed to use such machinery: despite the very point of the machinery itself being that we want to eliminate the need for highly skilled labour here.

Which is where we come to that piece about guilds: the AMA is a guild, as Friedman said and it will fight against anyone other than oncologists being allowed to use Watson's incorporated oncology database. A guild standing athwart the path of progress shouting stop in other words.

So how would we deal with this attempt to preserve the privileges and incomes of the doctors in the face of this new technology? As the authors of the paper point out:

The existence of innovation-blocking groups has been and continues to be an important barrier to riches. Some governments, such as the one led by Margaret Thatcher in the 1980s, have been able to reduce these institutions’ influence by tackling them head on, but this is not always easy, or common. A more indirect and pragmatic approach is to promote market integration, trade liberalisation and competition. Such policies are bound to endogenously weaken the influence of these groups, thus removing an important obstacle to innovation.

How would we promote market integration in medical services in the US? The most obvious way is to change the US market for doctors from 50 separate markets into just one market. Currently, for most (many perhaps) medical specialties licensing is at State level. Moving from one State to another is not a trivial or simple task for such specialists. The individual markets are thus dominated by a series of guilds. As Yglesias says:

These "scope of practice" regulations are a state matter, but with the federal government picking up such a large share of the health care tab, congress really ought to take an interest.

And the simplest thing Congress can say is simply that anyone licensed by any State Board of whatever is now licensed to practice whatever anywhere in the US. The States still decide the rules about who gets a license. But licensure would now be for the entire market of 300 million people, not just the State where it is originally granted. This fulfills the economic point that by increasing the market size, integrating those individual markets, we reduce the power of the guilds to block new technology. And thus things like Watson will be able to spread more quickly. To the great benefit of patients, even if not the privileges and incomes of oncologists. Or the AMA come to that.